Consensus Grows: Confront China On Trade

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
In the day-to-day news about trade problems with China the bigger picture can get lost. America is giving up its competitive position in industries of the present and future and it is costing us. Even the people you would think would defend “free trade” are coming to understand that America is losing its vital ability to invent, keep and create industries and jobs and to keep a modern economy humming.
Robert J Samuelson has a significant op-ed today in the Washington Post, The makings of a trade war with China in which he says we need to confront China’s illegal trade manipulations. You should read the whole thing but here are excerpts,

… Confronting China’s export subsidies risks a similar tit-for-tat cycle at a time when the global economic recovery is weak. This is a risk, unfortunately, we need to take.
… The trouble is that China has never genuinely accepted the basic rules governing the world economy. China follows those rules when they suit its interests and rejects, modifies or ignores them when they don’t.
… China’s worst abuse involves its undervalued currency and its promotion of export-led economic growth.

Samuelson concludes,

The collision is between two concepts of the world order. As the old order’s main architect and guardian, the United States faces a dreadful choice: resist Chinese ambitions and risk a trade war in which everyone loses; or do nothing and let China remake the trading system. The first would be dangerous; the second, potentially disastrous.

It’s not just Samuelson concluding that we need to confront China’s cheating on trade. Many others have been weighing in that we are losing too much and have to take steps. For example, in July Andy Grove, Intel’s influential former CEO published a very important opinion piece on a similar topic, How to Make an American Job Before It’s Too Late. Grove wrote that we are not just losing jobs to China, we are losing the “chain of experience” that enables new companies and industries to form and to create new jobs and argues for a national economic strategy to preserve our manufacturing and technology base. (These are excerpts but Grove’s entire piece is an absolute must-read.)

You could say, as many do, that shipping jobs overseas is no big deal because the high-value work — and much of the profits — remain in the U.S. That may well be so. But what kind of a society are we going to have if it consists of highly paid people doing high-value-added work — and masses of unemployed?
…evidence stares at us from the performance of several Asian countries in the past few decades. These countries seem to understand that job creation must be the No. 1 objective of state economic policy. The government plays a strategic role in setting the priorities and arraying the forces and organization necessary to achieve this goal.

Grove also says that we need to fix this and fix the unemployment problem for other reasons as well,

Unemployment is corrosive. If what I’m suggesting sounds protectionist, so be it.

One after another our business leaders and economists are realizing that the “free trade” ideology has not worked out very well for us. We were told by the “experts” that moving our factories out of the country was a good idea, that new jobs would replace those lost. They didn’t. We were told that we don’t need or want a national strategy to be competitive in the world because an invisible hand would guide us. It didn’t. We were told that trade “partners” would reciprocate by buying from us equally. They didn’t. We were told that we would invent new industries to replace ones we lost. We did, but the new industries moved or are moving out of the country, too.
Now that we are in the midst of the resulting crisis even the “experts” are realizing that trade needs to be a two-way street for it to work, and it hasn’t been. “Free trade” was supposed to be a panacea, bringing us a prosperous future. The reality was different. A few corporate leaders (the ones who promoted these ideas) have gotten really, really rich at the expense of the rest of us (and that includes other corporations and corporate leaders). Now that the beneficiaries of the “free trade’ bamboozlement are off to their private islands in their private jets or private yachts the rest of us are looking around at the devastation of our economy and standard of living, wondering what to do and finally becoming aware that rigid ideologies and their enforcers have kept us from looking for practical solutions that actually work for all of us as a country and community.
So finally from the depth of the resulting crisis a rational national discussion may be beginning, one in which people on the “free trade’ side are not able to just shut down different opinions by shouting “protectionist” or other slogans. As this discussion gets underway here are three principles to help guide us:
1) Let’s drop ideological preconceptions and look at what has worked in history and what is working for other countries today. Science is supposed to DEscribe, but economics has too often been about “if only people would do such-and-such, so-and-so would result.” That is PREscribing and is not science.
2) We have to talk about how we handle mercantilist nations like China who are not playing by the trade rules and what we, together as a nation, can do about it. Let’s also talk about and multinational reactions to the mercantilists. We can join with countries interested in lifting each other with fair trade, interested in trade models that help us mutually lift each other, and together take on those who want it all for themselves.
3) Ultimately we can’t all export our way out of this mess. And ultimately we can’t return to unsustainable old economic models that have failed us over and over. We can’t continue with a few taking as much as they can get at the expense of the rest of us. As machines and technology solve more of our problems and do more of our work our overpopulated, undereducated world has to come to grips with equitable models for who gets what for what and how to take care of our planet and each other. That is the only thing that will work in the long run.
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House Committee Approves China Currency Bill

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
The House Ways and Means Committee just approved a bill that pushes China to raise the value of its currency. It looks like the bill will go to a vote on the House floor next week. This is a very big deal because it is a “second front” pushing China to bring its currency to market rates. President Obama met with Chinese Premier Wen yesterday and most of their 2-hour meeting was taken up discussing this issue, and today he gets backing from the House. This tells China that we are serious, that it is more than just the administration talking, and they have to start doing the right thing.
China has been manipulating its currency to keep it low, which means goods made in China cost less in world markets. This, combined with other trade manipulations, has created a huge imbalance in world markets. It moves industries, jobs, expertise, money and power to China, and has created a huge “bubble” of imbalance that threatens the world’s economy. Currently the interests in China and elsewhere, including here, that benefit from the imbalance have the upper hand. But this vote demonstrates that the rest of us, here, in China and around the world, that would benefit from a rebalancing are rallying and challenging the current policies.
Bloomberg: China Currency Measure Heads for House Vote After Panel Approval

The measure would let companies petition for higher duties on imports from China to compensate for the effect of a weak currency. President Barack Obama “does not take a position on this specific legislation,” Jeff Bader, his director of Asian affairs, said yesterday.
“China’s exchange-rate policy has a major impact on American businesses, and American jobs, which is what this is all about,” Levin said before the vote.
The U.S. trade deficit with China widened to $145 billion in the first seven months of this year, from $123 billion for the same period in 2009. The expanding deficit, the unemployment rate lingering at almost 10 percent and polls showing Democrats’ seats at risk heading into the elections have added support for the bill, which has been discussed since 2005.

China had agreed to start rebalancing its currency, but the currency has moved only 1 percent since the agreement – nothing near the 40% some claim it needs to move. Meanwhile our trade deficit with China has increased. China’s Wen claims that China is still a poor country and needs this protection to help it build the industries that will help its people rise out of poverty,

China might now be the second largest economy in the world, but Premier Wen insisted at the UN General Assembly that the “real China” was still in the “primary stage of socialism” and remains a developing country.
Pointing out that 150 million Chinese people still live in poverty, Wen said many regions in central and western China were still very poor and this is the “real China”.
“Taken as a whole, China is still in the primary stage of socialism and remains a developing country… These are our basic national conditions. This is the real China,” he said.

The way to bring China, now the second largest manufacturer in the world, out of poverty is to trade fairly and work with its trade partners, not to manipulate the rules and create a huge imbalance that threatens the economy of the entire world.
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China Currency Bill Moves — Why Some Corporate Interests Oppose

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
As President Obama meets with Chinese Premier Wen, the House Ways and Means Committee announces it will vote tomorrow on a bill to take action if China does not bring its currency to market rates. This sends a loud and clear signal to China that action is coming, one way or another, and they are going to have to make adjustments. This has every appearance of a smart, coordinated strategy between the administration and the leadership of the Congress.
WaPo: Bill combating China currency to advance,

House leaders are moving forward with legislation to combat China’s currency policies, adding to pressure from the Obama administration and giving lawmakers an election-year chance to vote on a sensitive trade matter.
The House Ways and Means Committee plans to vote Friday on a bill that would expand the Commerce Department’s power to impose duties on Chinese imports in response to that country’s currency being undervalued on world markets.

But there is opposition from inside our own country.

Some business groups oppose the bill, arguing that it could backfire if it raises trade tensions with China and prompts the Chinese government to use the many tools at its disposal to interfere with American companies. China is a major destination for U.S. exports – about $70 billion a year – although the United States runs a trade deficit of about $200 billion a year with that country. Duties on Chinese imports might also raise prices for U.S. consumers.

There are competing interests at work. Robert Reich wrote about this a week ago in The Two Categories of American Corporation — And Their Politics and Harold Meyerson picks up the theme today in The real un-Americans.
Reich points out that some giant companies sell to Americans, and therefore want us strong and prosperous, and want policies that stimulate our economy, provide jobs with good pay and generally boost the middle class. Others, not so much.

The first group includes national telecoms like Verizon and AT&T that need a prosperous America because most of their sales are here. Same with finance companies like Bank of America and Travelers Insurance whose business strategy has been built around U.S. consumers. Ditto certain giant chains like Home Depot. Naturally, all these companies were especially hard hit by the Great Depression and its devastating impact on American consumers.
The second group includes companies like Coca Cola, Exxon-Mobil, Hewlett-Packard, Intel, and McDonalds, that get substantial revenues from their overseas operations. Increasingly this means China, India, and Brazil. Ford and GM are still largely dependent on US sales but becoming less so. …

What does this mean for Main Street? Reich says,

Large American corporations are going global as fast as they can. That’s good for their shareholders. But in a Washington ever more susceptible to their money and influence, that’s not necessarily good for most Americans.

Meyerson picks up on this today,

Consider the debate in Congress about whether to impose tariffs on Chinese imports if China continues to depress the value of its currency. … Unions and some domestic manufacturers support the bill. But a large number of American businesses, in a campaign coordinated by the U.S.-China Business Council, oppose it.
… The question here is whether the 220 corporations that belong to the council … are already so deeply invested in China as manufacturers, marketers or retailers that buy goods there to sell them here that their interests are more closely aligned with China’s than with America’s. [emphasis added]

It is important to understand that some of the country’s most powerful entrenched, wealthy interests no longer depend on the success of America’s economy and the prosperity of our people. They have a lot of power and money, and use it to influence our country’s politics to increase their own wealth and power. But their interests are not our interests. They want low taxes and don’t care whether we have good jobs, good schools, modern infrastructure and an economy that works for We, the People. They just don’t care about that. And they are willing to say and spend what it takes to set us against each other, poison our politics, and anything else they need to do to get us to act in their interests not ours. “Globalization” and “free trade’ policies work for them, because they enable them to evade the protections that our democracy gives us. But allowing them to just move factories and jobs out of the country and then bring the goods back here with no penalty does not work for the rest of us.
Keep this in mind when you hear the different arguments over taxes, infrastructure, education and government in general.
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China Currency Battle Heating Up

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
Since China joined the World Trade Organization (WTO) our country’s balance of trade has gotten worse and worse and we have lost jobs and jobs (and money and money). Between 2001 and 2008 we lost 2.4 million jobs just to China. Normally a situation like this balances out because China’s currency would rise, making goods made here competitive and helping China’s workers be able to buy things we make. So we would benefit from the gains they make. That’s why trade can be a win-win when parties play fair.
But China isn’t playing fair. They manipulate their currency, “pegging” it to the dollar, so goods made there continue to have a lower price in world markets. Some say that they have a 40% pricing advantage just from the currency manipulation. And after that you can take into account the many other ways that China is cheating on trade. So we have a huge problem and a huge imbalance, both growing to extremes.
Japan got tired of waiting for China to stop cheating. Financial Times: Japan intervenes to weaken yen,

Tokyo intervened in the currency markets for the first time in more than six years to weaken the yen, sending it nearly Y3 lower against the dollar to mitigate the threat its strength posed to Japan’s export-reliant economy.

Note that this means we now have both China and Japan weakening their currencies against ours, giving both pricing advantages against our goods, which will add to the pressures on us.
Congress is looking into China’s currency manipulation with hearings beginning today, and may act soon. The Hill: Punishing China becomes issue for Democrats in midterm election,

Ryan’s bill would allow the Commerce Department to consider currency manipulation in calculating countervailing and antidumping duties on any imports from countries manipulating their currencies to lower the cost of their exports. … Many rank-and-file Democrats are frustrated with China, which promised in June to allow its currency to follow market trends. Since that announcement, China’s currency has increased by less than 1 percent.

Action by Congress would be politically popular. Harold Meyerson writes in the Wash. Post about this today, in Time to stand up to China on trade

There’s little dispute that the Chinese government controls such strategic industries as alternative energy and that it subsidizes that industry massively, in clear violation of WTO rules. Politically, the American public plainly supports policies that boost American industry and curtail offshoring. A Heartland Monitor poll, sponsored by Allstate Insurance and the National Journal, released last week, asked Americans to choose one of three options for how America should deal with the global economy. Thirty-six percent backed a program that instituted tariffs on imports and penalized companies for offshoring jobs. Thirty-two percent supported governmental programs to help strategic domestic industries. Just 23 percent backed a laissez-faire free-trade policy.

Business groups representing the huge multinationals are fighting on China’s side on this. Reuters, US groups urge Congress not pass China currency bill,

Thirty-six U.S. farm and business groups urged Congress on Tuesday not to pass legislation threatening China with duties on some of its goods if Beijing does not revalue its currency.

Meyerson again,

Consider what this says about contemporary American capitalism. American big business is now so inextricably invested in China that it won’t defend or promote American-based manufacturing. Those tasks have fallen to our largest manufacturing union. By any dispassionate measure, it’s our labor movement, not our leading businesses, that deserves the term “American.”

If China would play by the rules, this would balance itself and turn into a win-win. If the administration would insist that China plays by the rules, backed up with a strong tariff if they don’t, China would likely start coming around. And if nothing else works, a strong tariff on Chinese goods is needed. It is time for Congress to act.
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Our Growth Is Outsourced, Like Our Jobs

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
In the news today, a familiar story: imports increased, exports declined. About $50 billion in one month alone. The trade gap isn’t just costing jobs, it’s a significant factor in the slow recovery as well. See below.
In 2005, when we were halfway down to where we went, I wrote a post at my own blog titled, The Trade Problem. With (my) permission, here is the entire post:


View of San Francisco from Sausalito.


See how this ship is riding high off the water? This ship is loaded with empty containers, bound for China.
Ships come into the port loaded with goods that we buy from China. But China doesn’t buy very much from us. So we have to send ships back loaded with empty containers. (Well almost empty, they’re actually filled with dollars, and jobs, and the future.)

June 2010 Trade Numbers: We’re Back To Terrible
That was 2005, And now we’re importing shiploads of stuff again, and sending the ships back filled with cash – and what’s left of our future. The trade deficit widened to $49.9 billion in June,

The trade deficit in the U.S. unexpectedly widened in June to the highest level since October 2008 as consumer goods imports rose to a record and exports declined.
[. . .] Exports from the U.S. decreased to $150.5 billion from $152.4 billion, reflecting fewer shipments abroad of semiconductors, computers and steelmaking materials. Imports increased in June to $200.3 billion from $194.4 billion, led by telecommunications equipment, automobiles and consumer goods such as pharmaceutical preparations, televisions and furniture.
The quantity of imported petroleum increased, while the price per barrel fell to $72.44 from $76.93 the prior month, according to today’s report.

Trade Deficit Cuts Jobs And GDP
We are not just outsourcing jobs, we are outsourcing our own economic growth to others! Charles McMillion of MBG Information Services writes that, “the worsening trade deficit cut the Q2 GDP growth rate by -2.8%.”

That is, if trade and production losses in Q2 had remained at Q1 levels, all other things equal, GDP would have risen at a 5.2% rate in Q2 rather than the actual estimate of meager 2.4% growth. Today’s report suggests BEA must now revise its estimate which could show the worsening trade deficit lowering the Q2 growth rate by a full -3.0% leaving growth at just 2.2% with, apparently, worse to come.

A lot of people think it’s just “old stuff” like steel that is losing out. But look at this chart:

Note how the chart has to be extra tall to fit the huge decline in exports of advanced products. There are more charts with more bad news. (PDF)
Congress And The President’s New “Make It In America” Initiative
Congress and the President are trying to do something about it, with the new “Make It In America” initiative. CAF’s Bob Borosage in Politico today, Save American manufacturing,

More than 75 percent of Americans support a “national manufacturing strategy to make sure that economic, tax, labor and trade policies work together to help support manufacturing in the U.S.”
Not surprisingly, the Democrats’ lead initiative now is the National Manufacturing Strategy Act … It calls for quadrennial review of U.S. manufacturing policy — including assessing strategic industries, reviewing tax and trade subsidies and requiring agencies to coordinate strategies.
. . . Obama’s “new foundation” for the economy offers first steps: public investment in 21st-century infrastructure, in education and training, in research and development. Yet these, slighted in years of conservative control, are necessary but not sufficient.
To ensure products are “made in America” requires hardheaded steps to balance trade and challenging the mercantilist countries, starting with China.

AAM: “Wrong Direction” and “Giving China Benefit of Doubt on Currency Falls Short
Alliance for American Manufacturing (AAM) Executive Director Scott Paul on this morning’s latest monthly U.S. trade figures:

“The trade deficit is headed in the wrong direction, and that’s bad news for American workers. …
“The White House strategy of giving China the benefit of the doubt on currency has fallen short. The House and Senate must now step in and pass strong legislation to penalize China’s currency manipulation and bring down our trade deficit. Over the longer term, we’re encouraged that the recent focus by Congress and the Administration on ‘Made in America’ solutions to revitalize our manufacturing base and create jobs will bear fruit …
“The drop in exports is also an enormous blow to the Administration’s efforts to double American exports. … The biggest internal obstacle is the lack of an aggressive strategy to boost American manufacturing. ….”

Are we right back to the “new normal” with even more jobs and industries being shipped overseas? Or are we going to learn from the past and do something about it this time? Conservative “free trade” and “free market” nonsense just doesn’t work. It’s time to leave that stuff behind instead of trying to accommodate and appease, and all the resulting backup that brought us, keeping us from moving forwards: We need “Buy American” in procurement. We need high-speed rail and local mass transit projects. We need a huge infrastructure rebuilding and modernization effort. We need the Local Jobs for America Act. We need a national Renewable Energy Standard. We need to set a high price on carbon. We need to build out the smart electrical grid. We need to address Chinese currency manipulation and trade violations. We need to restore taxation of the wealthy. We need free education for our people. We need to extend unemployment and COBRA subsidies for the “99ers.” We need to increase the minimum wage. We need to pass the Employee Free Choice Act. We need Immigration Reform.
And this is just some of what we need. And these all just buy time until we can figure out how to restructure the economy by reforming who gets what for what and ideas of what “ownership” means, so that we can all move into a prosperous, progressive future.
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Chinese Paper Subsidies: Boring? Jobs: Not Boring!

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
China is cheating again. Yawn… China is subsidizing its paper industry ($33 billion 2002-09) and has tripled their production, and now is the largest producer of paper and paper products. Yawn.
This has cost jobs and approximately 400,000 remaining American jobs are at risk. And the companies they work for. NOT so yawn!
The Economic Policy Institute has released a briefing paper, titled, No Paper Tiger. This paper documents the different government subsidies behind the surge of Chinese paper imports, and look at its implications for the American paper industry.
Some of the subsidies that government provides,

This Briefing Paper estimates that in China’s paper industry, subsidies for electricity amounted to $778 million • (from 2002 to 2009); subsidies for coal, $3 billion (from 2002 to 2009); subsidies for pulp $25 billion (from 2004 to 2009); subsidies for recycled paper, $1.7 billion (from 2004 to 2008); subsidy income reported by companies, $442 million (from 2002 to 2009); and loan-interest subsidies, $2 billion (from 2002 to 2009). Missing data prevented calculation of pulp or recycled-paper subsidies in 2002, 2003, and 2009.

Implications for our own industry,

Cheap, subsidized Chinese paper exports have affected the U.S. paper industry. Despite comparable cost structures, high efficiencies, and plentiful natural resources, U.S. paper companies have failed to compete globally or nationally on price against much-cheaper Chinese imports. In 2010, the United States remains a net importer of paper and paper products. Imports from China are rising faster than those of any other country for this industry, with the value of U.S. imports from China growing at an annualized rate of 22%.

And the cost in jobs,

“From 2002 through the end of 2009, U.S. employment in the paper and paper products sector dropped 29 percent, from roughly 557,000 workers to 398,000.”

As the paper shows, China has no competitive advantage or cost advantage that would lead to the lower prices that are powering this surge. Labor is only 4% of the cost, and they import much of the pulp for the paper. They don’t have economy of scale. It is only the government subsidies that enable them to take over the industry.
From the Alliance for American Manufacturing, (See press release here.)

China’s massive subsidies to its paper sector are doing severe damage to the U.S. paper industry, its workers and their families,” said Scott Paul, executive director of the Alliance for American Manufacturing (AAM). “The only way to stop the bleeding is for U.S. policymakers to take action against China’s blatant violations of trade laws, including sweeping subsidies to paper and many other industries.”

The manufacturethis blog lets you look up how many jobs this costs in your state and Congressional district.
We need better trade law enforcement.
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Video Interview: Scott Paul Of AAM On China Dialogue

Today I was able to conduct a short webcam interview with Scott Paul, Executive Director of the Alliance for American Manufacturing. The occasion is this week’s Us-China Strategic and Economic Dialogue taking place in Beijing. This dialog is a series of meetings between top-level officials of both governments on a number of issues. Secretaries Geithner and Clinton are leading the US delegtation. The trade imbalance between the US and China is one of the top issues being discussed.
Scott has posted a video at the AAM manufacturethis blog, titled THE 15 NUMBERS YOU NEED TO KNOW, which discusses AAM’s 15 Numbers You Need to Know before the U.S.-China Strategic and Economic Dialogue in Beijing next week. (Example: 2.4 million: Number of U.S. jobs lost or displaced due to U.S.-China trade imbalance, 2001-2008.)
Here is our interview with Scott Paul:

Scott will be speaking on Making It In America at the America’s Future NOW! Conference in Washington, DC, June 7-9. Click here to register for the conference.

Big Weekend News On China Currency Problem

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
While publicly saying that China is manipulating its currency — a very big deal — Treasury Secretary Geithner announced over the weekend the administration is getting around the problem of an April 15 deadline for declaring that China is a currency manipulator by … pushing back the deadline. They are instead taking the issue to the G-20, beginning with meetings later this month in DC.
Geithner’s official statement makes it clear,

China’s continued maintenance of a currency peg has required increasingly large volumes of currency intervention. Additionally, China’s inflexible exchange rate has made it difficult for other emerging market economies to let their currencies appreciate. A move by China to a more market-oriented exchange rate will make an essential contribution to global rebalancing.

So there we have it: China is manipulating its currency and this is harming us and blocking badly-needed global rebalancing. Acknowledging the problem is the first step toward dealing with the problem.
Senator Grassley pointed out that story teaches us we just have to face up to it and deal with this. Grassley criticizes delay of Treasury report regarding China,

Sen. Chuck Grassley (R-Iowa) criticized Treasury Secretary Timothy Geithner for delaying the release of the Department’s exchange rate report because it might strain relations with China.
. . . “If we want the Chinese to take us seriously, we need to be willing to say so in public,” he said in prepared remarks. “The past few years have proven that denying the problem doesn’t solve anything. The Treasury Department should cite China as a currency manipulator.”

But this time the problem isn’t denial it is action. Geither did cite China as a currency manipulator in his statement, but is not taking the official action of formally declaring them a currency manipulator.
Fox News’ take on it is different: “caving”,White House Denies Charges of Caving to China on Currency. (Note that the story in no way mentions “caving”, only the spin in the headline.)
The Way Forward
This is success. America’s manufacturers, economists, unions and Main Street applied pressure demanding relief from China’s assault on our economic base, and with this public acknowledgement have had some success. But not enough. The administration could not continue the pattern of years of denial.
So the question now is, what are we going to do about it?
News reports suggest that China is going to let its currency appreciate just a bit, maybe 5% over a year as a sop to placate the rest of the world. But this is an unacceptably small offering that does not even begin to address the magnitude of the problem and the damage being done. China currently enjoys a trade advantage of up to 40% because of their currency manipulation and continues to drain factories (and the accompanying knowledge and supply chains), jobs, markets, money and hope from the rest of the world. Productivity alone is rising enough to easily offset a 5% move. If this is the extent of China’s response the imbalances and resulting tensions will only continue to worsen.
This is exactly the time to expand the challenge to the administration. The Graham-Schumer bill, S. 295, intends to “level the playing field” with China,

Specifically, the amendment allows for a 180 day negotiation period between the US and China to revalue its currency, if the negotiations are not successful, a temporary across the board tariff of 27.5% will be applied to all Chinese products entering the United States – a penalty that corresponds to their estimated currency advantage.

Beyond this one issue, there is a larger problem. What is America’s strategy going to be, in a world that is half-mercantilist? Almost every other industrialized country is pursuing a national strategy. How are we responding? Until we have a national industrial/economic policy we remain at the mercy of “free markets” that are not free but are actually rigged against the American Main Street’s economic interests.
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“Re-shoring,” “On-shoring” and “Insourcing” – The Coming New Era Of American Manufacturing

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
What will it mean to American businesses if – I should say when – Chinese imports cost as much as they should cost?
A currency and trade rebalancing is going to happen sooner or later because it has to. We can’t run a trade deficit forever. If something is unsustainable it can’t be sustained. Eventually we have to earn the money to pay off what we are borrowing and the only way to do that is with exports. The first step to that is to stop importing so much and at least make things to sell to ourselves.
This rebalancing could happen because China lets its currency approach market levels. Or, if China refuses to stop unfairly subsidizing their exports (their currency manipulation is just one piece of that) our government will have to impose tariffs on imports from China. There are other things that could change the current trade imbalance. The only thing that is for sure is that the current situation can’t just continue. We can’t just keep sending factories, supply chains, jobs, and dollars away. It’s a bubble that has to pop. And it will. American business should be planning for this approaching new era of American manufacturing.
Once the Chinese import bubble pops new phrases will enter the lexicon, so start getting used to them. “Re-shoring,” “on-shoring” and “insourcing” will replace “offshoring” and “outsourcing.”
A week ago I wrote about a CNBC segment on this,

For many years we’ve been hearing about outsourcing and offshoring. President Obama has started taking steps to rebalance world trade and the pendulum is about to start swinging the other way. More and more often you’ll be hearing new words: “insourcing,” “on-shoring” and “re-shoring.”
Watch this CNBC segment from Friday, Made in America Making a Comeback.

American businesses — are you ready? It’s coming.
P.S. Here’s a stock tip: machine tools.
Update and P.S. —
Re-Shore at the NTMA/PMA Contract Manufacturing Purchasing Fair

Help bring manufacturing back to the U.S.!
At last somebody is doing something: the May 12, 2010 NTMA/PMA Purchasing Fair focuses on re-shoring. The $ is down vs. many currencies. JIT and R&D are best supported, and carbon footprint minimized, by local sourcing. The time is right for this effort to succeed.
Customers bring your off-shored work! Vendors bring your best technical ideas and sharp pencils! Learn More

Click through!
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G-20 Standing Up To China, Now It’s Your Turn

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
As the manufacturing infrastructure of suppliers, technology knowledge, etc., moves to China, dependence follows. China appears to be ready to answer, “So what are you going to do about it?”
The world is starting to realize this. Financial Times, yesterday, China reprimanded by G20 leaders

Five prominent members of the Group of 20 leading economies, including the US and UK, sent a coded rebuke to China on Tuesday against backsliding on economic agreements.
In a letter to the rest of the G20 that shows frustration at slow progress this year, the leaders warned: “Without co-operative action to make the necessary adjustments to achieve [strong and sustainable growth], the risk of future crises and low growth remain.”

Reuters says,

The letter was signed by U.S. President Barack Obama, Canadian Prime Minister Stephen Harper, French President Nicolas Sarkozy, South Korean President Lee Myung-bak and UK Prime Minister Gordon Brown.

Meanwhile Business Week looks at China, in China: Closing for Business? (turn your sound off before clicking)

Nearly a decade after China’s entry into the World Trade Organization, many foreign companies say the warm reception they once received has turned frosty. … A new government procurement program known as “indigenous innovation” features rules favoring local firms: It could block sales worth billions of dollars a year. … Beijing has written strict standards for everything from cell phones to cars, often couching them in a way that gives an advantage to domestic producers.

Summary, China used the promise of access to its huge market to grab control of much of the world’s manufacturing. “You want to sell to us, you have to build your factories here.” Now that they have it they are no longer as interested in sharing. And while they subsidize manufacturing in various ways – including currency manipulation – to lure companies to move factories and jobs to China, they are not letting those companies sell inside China. So the huge trade imbalance continues to grow.
China pursued an effective industrial policy. Meanwhile, we don’t even have one.
What are we going to do about that?
Here is something you can do today: Click here to tell Washington: Tell the truth. China is manipulating its currency and playing by its own set of rules.

The Treasury Department must report twice a year which countries are practicing unfair trade by artificially lowering the value of their currencies, making their imports cheaper and our exports pricier.
The next Treasury report on currency manipulation comes on April 15. The Chinese government is spending an unprecedented $30 billion a month buying dollars and selling yuan to keep its currency low and its exports cheap.
Yet regardless of who is in charge of the White House, the US has yet to follow the law and state the truth.

To share this:
Direct Twitter share link (click on this, don’t copy it):
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And then, after you have done these, demand that our government formulate and follow a national industrial policy so we can start bringing the jobs back home.
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Chinese Currency Manipulation Is Just One Piece

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
I’ve been focusing on the Chinese currency manipulation problem because the Obama administration is supposed to make it’s twice-a-year declaration on this on April 15. But even if this problem is addressed as it needs to be, keep in mind that it is just one piece of the larger problem of Chinese trade policies.
In a post the other day I listed the main unfair advantages China uses to its advantage:
1) Currency manipulation. China “pegs” its currency at a very low, or “weak” rate, so goods from China cost up to 40% less than they otherwise should.
2) Labor-rights suppression has lowered manufacturing wages of Chinese workers by 47% to 86%.
3) There is massive direct government subsidization of export production in many key industries.
4) China allows environmental degradation that ends up affecting all of us.
5) Intellectual property theft and piracy mean that American products that could be sold are stolen instead.
6) China has a number of policies that block U.S. firms from market access.
It is necessary to bring their currency to market rates, but this is not all that must be done to bring trade into balance. It helps, it doesn’t fix it.
All of these things that China is doing are collectively called a national industrial policy. China has one. We don’t. China’s share of the world’s business has grown exponentially because they have and follow a national industrial policy. Ours has declined dramatically because we don’t. I’m trying to drop a hint here, but for those in Washington who aren’t following let me spell it out more clearly: America needs to develop and follow a national industrial policy.
One more thing, Senators Graham and Schumer have introduced a bill, S. 295, that will “level the playing field” with China.

Specifically, the amendment allows for a 180 day negotiation period between the US and China to revalue its currency, if the negotiations are not successful, a temporary across the board tariff of 27.5% will be applied to all Chinese products entering the United States – a penalty that corresponds to their estimated currency advantage.

It’s time to call the President and your member of Congress, and tell them to let the Treasury Department know that they need to declare China a currency manipulator. And ask them to support the Graham-Schumer bill.
When you call, you can use info from this report by The Alliance for American Manufacturing and Economic Policy Institute titled, “Unfair China Trade Costs Local Jobs.” Accompanying the report is a website with an interactive map that shows job losses to by state and Congressional District:


Click the map.

Also, look at CAF’s breakout page on the China trade problem: On Jobs, China Has Us In The Red
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Even Chinese Officials Understand — Their Currency Must Rise

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
When a policy is just wrong it’s just wrong. I have written about how Chinese CEOs and Chinese economists have been making the case for China to bring its currency up to market rates.
Even Chinese government officials are making the case for a stronger currency. In a must-read NY Times story, China Officials Wrestle Publicly Over Currency,

The current drama began on March 6 when the governor of China’s central bank stunned analysts by saying that the bank’s policy of keeping the renminbi at a constant exchange rate against the dollar was a “special” response to the global financial crisis.
The new description suggested to many economists that the current value of the renminbi was temporary and that the central banker, Zhou Xiaochuan, was preparing the Chinese public for a stronger renminbi.

Why is all of this discussion about Chinese currency coming to a head now?

The debate is far from academic. In the coming weeks, the Obama administration faces a series of politically charged deadlines set by Congress to decide whether to continue negotiating with China over currency and trade issues or to take a more confrontational stance and name China a currency manipulator.
If the administration labels China a currency manipulator, it would face further Congressional pressure to impose punitive tariffs on many Chinese goods.

Please read the entire NY Time story for its explanation of some of China’s internal tensions over the currency-rate problem. The Commerce Ministry is close to exporters who have been enjoying this manipulated advantage, and fights for their interests. The central bank has accumulated a vast store of foreign currency and would be blamed for the value drop of this pile of foreign cash as their own currency gets stronger. But the pile also means that the central bank cannot easily raise interest rates to fight rising inflation. Because of this inflation companies are starting to import and stockpile commodities. Etc. It’s a tense mess with the highest of stakes. (Yes, I feel the excitement of a thriller when I read about economics. My wife rolls her eyes.)
The Chinese government is trying to just manage all of these market forces instead of letting them operate as markets. The resulting imbalances are causing tremendous pressures – and bubbles – to build up both inside and outside of China. If China won’t resolve this as the danger to the world’s economy grows, the rest of the world must step in. On April 15 President Obama has an opportunity to start restoring balance to the world’s economy by declaring China a currency manipulator and taking steps designed to force them into balance with the rest of the world. Think of it as an intervention for their own good.
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